The government’s consultation on price transparency in defined contributions (DC) pensions has been poorly designed and will not capture all the costs, the shadow pensions minister has warned.
Alex Cunningham, MP for Stockton North, told delegates at the Pensions and Lifetime Savings Association (PLSA) trustee conference in London yesterday (6 December) that the government "resisted" Labour’s proposals for greater transparency on pension fund holdings.
He warned trustees might not be able to capture the right data and could be liable for failing to be sufficiently transparent about the transaction costs on their scheme’s investments.
Mr Cunningham said: “The problem of cost transparency is acknowledged by the regulator and government. But the government continues to drag their heels and I’m concerned that the current consultation by the Department for Work & Pensions on defined contribution cost is poorly designed."
The Department for Work & Pensions published a consultation paper on improving disclosure on cost and charges in workplace pensions in October.
The paper seeks to force schemes to publish information about cost and charges and tell members where they can find it and provide information, to members about the funds in which their money is invested.
The paper followed the Financial Conduct Authority’s (FCA) new rules out in September, which will force asset managers to disclose total transaction costs to pension schemes that directly or indirectly invest in their funds.
The rules require the managers to provide information about administration charges, and a breakdown of the transaction costs, on request, with the total broken down into clear categories of costs.
A working group created by the regulator, the Institutional Disclosure Working Group (IDWG), is currently working on templates for providers to break down those costs.
But Mr Cunningham said Labour did not think the regulator’s methodology would force providers to report all the costs, meaning trustees could find themselves breaching the rules without knowing they were doing so.
This could incur hefty fines. He said: “We think there will be problems with the checking of the data provided to you.
“It is you the trustees that, if you get it wrong, will be the one paying the price perhaps through no fault of your own."
He added: “We don’t think that imposing a fine of over £50,000 on you is either fair or practical for failing to report data you may not even know exists, when there is no such penalty on fund managers or the custodians of that data."
Mr Cunningham also said the FCA should require the use of the IDWG template for all defined contribution and defined benefit schemes, not just the DC schemes.
Despite his sharp criticism Mr Cunningham said the work that has been done was “a step in the right direction.”
He said: "It is right that defined contribution members get to understand the assets they hold."
Earlier in the day Chris Sier, chairman of the institutional disclosure working group at the Financial Conduct Authority, urged pension funds to probe the honesty of the asset managers they work with.
He said pension funds should not trust the information they are given about asset management costs outright and always question when a manager tells them they can’t provide the information requested.
"Having someone to check the detail is really important. Never rely on the information you are given," Mr Siers said.
carmen.reichman@ft.com
